A Multi-Dimensional Conflict for Arnold

by Doug Heller
December 19, 2003 - 10:15 AM

With all the brouhaha over the mutual fund industry and its scandal-ridden recent past, California�s massive public pension fund, known as CalPERS, has led the pack of investors trying to clean up the industry by dumping funds that haven�t played by the rules. However, there is one fund manager - Dimensional Fund Advisors of Santa Monica � that will certainly not lose its CalPERS contract. That�s because yesterday Arnold announced that he has retained his ownership stake in Dimensional, even though, as Governor, he has a hand in deciding where CalPERS invests its billions. Officially, we know that the Governor has at least a $1 million piece of Dimensional, but reports have suggested that he owns a "significant" stake in the company.

This is one of the reasons that ArnoldWatch believes the Governor should cut ties with the firm. CalPERS, the nation�s largest pension fund, is run by a Board to which the Governor makes almost a third of the appointments. While Arnold might never "demand" it, you can be sure that his appointees, and the other members, many of whom have direct political ties to the Governor, are not going to ditch Arnold�s investment firm if push came to shove.

To live up to his promises of cleaning up Sacramento, the Governor should not own a company that has a major contract with the state. (If Arnold keeps the company and still wants to live up to his definition of special interests - "a group with business before the state" - he would have to stop talking to himself!)

Arnold�s spokeswoman justified Arnold maintaining his stock in Dimensional, even though he sold off most other stocks in his portfolio, by saying his ownership of Dimensional has been placed in a blind trust. Now, that�s silly. It ain�t a blind trust if you know what�s in it.

Coming soon, the other reason that Arnold must divest from Dimensional.

And thanks to the ArnoldWatch tipster that identified the CalPERS conflict.

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